The commercial integration industry experienced a truly transformational year in 2016. The rapid evolution of technology combined with shifting client needs has caused integrators to rethink how technology and services are delivered. Collaboration between voice, video and traditional IT is increasing and is causing a paradigm shift in how clients leverage technology to communicate and grow their enterprise.
In 2016, integrators successfully employed merger and activity (M&A) strategies to grow their businesses by acquiring complementary services and technologies, accessing new geographic markets and bolstering their presence in attractive and growing end markets. In addition, integrators leveraged M&A in pursuit of liquidity as both private equity and strategic buyers played an active role in the marketplace.
As integrators develop, refine and execute on their strategic plan for 2017, several notable and potentially impactful trends are worth considering.
Fragmentation Driving Industry Consolidation
The rapid rise of M&A in the industry is not too surprising. The macroeconomic environment has been defined by slow and steady growth for the past several years. Businesses across the board have been forced to supplement organic growth with mergers and acquisitions in order to remain competitive and deliver shareholder returns.
The economic environment has been supportive of this trend as corporate balance sheets remain strong, interest rates remain near historic lows and private equity has record-high levels of cash ready for investing. M&A moves have impacted both integrators and hardware manufacturers as each strives to remain relevant and competitive in their constantly evolving industries.
Fueling the consolidation trend is the fragmented nature of the integration marketplace. There are approximately 5,000 services and solutions providers in the U.S., representing roughly $16.9 billion in service-related revenue in 2016, according to a recent InfoComm study. The top 50 AV/IT/automation providers reported revenues of approximately $3.4 billion or 20 percent of industry revenue, with the remaining 4,950 providers making up the balance of $13.5 billion (80 percent) or $2.5 million average revenue per integrator.
Integrators Try Enhancing Value Proposition
The AV industry has historically been driven by project-oriented work — work that is often choppy and unpredictable, and subject to pricing and margin pressure. The rapid evolution of technology and shorter refresh cycles, combined with customers’ desire for unified communications and IT-centric solutions has created demand for sophisticated professionals with expertise beyond traditional AV.
Integrators that have made investments in people, infrastructure and support have the most to gain as the trend continues to develop and mature. Smaller, resource-challenged integrators are beginning to face an uphill battle with both IT and unified communications forming the backbone of today’s complex AV solutions. In addition, integrators without the infrastructure and experience to support managed services will find it increasingly difficult to profitably compete in a crowded, technologically-advanced marketplace.
In 2016, integrators actively used acquisitions as a means to build value for their customers, shareholders and employees. Acquisitions have helped integrators add complementary services that can be cross-sold to both new and existing customers; add depth and experience in certain verticals; and to expand geographic scale, both domestically and internationally. (Several notable acquisitions are identified below.)
To further demonstrate these trends, let’s highlight several 2016 transactions and their impact on both the buyer and seller.
AVI-SPL’s November 2016 acquisition of Anderson AV accomplished several objectives. First, it allowed AVI-SPL to further entrench itself in the California marketplace. Second, it provided AVI-SPL with a robust cadre of customers in the tech sector, a market that is expected to experience strong growth in the coming years. Third, the acquisition provided Anderson’s customers with a global solution and service footprint, a benefit Anderson on its own couldn’t provide.